VES-13-18-CO:R:IT:C 111337 LLB
Deputy Assistant Regional Commissioner
Commercial Operations Division
423 Canal Street
New Orleans, LA 70130-2341
RE: Vessel repair; Cleaning; Casualty; Vessel S/S GOLDEN
ENDEAVOR; Date of Arrival August 20, 1989; Port of Arrival
New Orleans, Louisiana; Vessel Repair Entry No. C20-
0024662-2; Petition for Review
Dear Madam:
This is in response to your memorandum of October 5, 1990,
which forwards for our consideration a Petition for Review filed
in connection with the GOLDEN ENDEAVOR, vessel repair entry no.
C20-0024662-2. Our findings are set forth below.
FACTS:
The GOLDEN ENDEAVOR (owned by Irving Trust Co. and operated
by American Maritime Transport Inc.) underwent foreign shipyard
operations at Athens, Greece, from July 4, 1989, to July 31,
1989. The vessel arrived in the United States on August 20,
1989, at New Orleans, Louisiana. An Application for Relief was
submitted and acted upon (Customs Ruling 110661), the decision on
which is the subject of the current appeal.
We are specifically requested to review four items upon
which duty liability was found to exist in our earlier ruling on
the Application. The items before us are:
Item 225, the painting of anchor chain shots.
Item 330, operations involved with the hookup of an incinerator.
Item 406, operations associated with meggar readings.
Item 412, work on the fire and butterworth systems.
Also included in the case file are several invoices for
materials which either manufactured and purchased in the United
States, or imported into and purchased in this country. It is
your opinion that materials in either of these categories would
be free of vessel repair duties in this case by virtue of recent
amendments to the vessel repair statute.
ISSUE:
Whether sufficient additional evidence has been presented to
render the above-stated items free from vessel repair duties.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a), provides, in
pertinent part, for payment of duty in the amount of 50 percent
ad valorem on the cost of foreign repairs to vessels documented
under the laws of the United States to engage in the foreign or
coastwise trade, or vessels intended to be employed in such
trade.
With regard to item 225, the painting of anchor chain shots,
it is claimed that this should be a duty-free item because it was
part of a governmentally required inspection and included no
repair elements. It has, of course, long been held that the cost
of a required survey or inspection may continue to remain free of
duty even if various dutiable operations are performed in
connection with that survey. Further, the issue of the painting
on of anchor chain marks has been addressed specifically in prior
published rulings and has been held to be a dutiable repair
operation (see C.I.E. 233/60, March 11, 1960).
In our previous consideration of item 330 (Incinerator
Hookup), we stated that it was claimed by the applicant to be a
non-dutiable permanent modification to the vessel's hull and
fittings. We found that examination of the shipyard invoice
revealed that repairs were also included in the cost listed. In
C.I.E. 1325/58, the Customs Service held that the entire cost of
an item is dutiable where non-dutiable charges are not itemized
from dutiable items. Here, the invoice under consideration does
not segregate the costs of the alleged modification from the cost
of the repairs completed, and no additional evidence to the
contrary has been offered. Accordingly, we find that the entire
amount is dutiable.
In regard to item 406 (Megger Readings), we find that the
item includes maintenance and servicing functions as well as
inspection (electrical connections were hardened up). Here, as
above, there is no segregation of maintenance and inspection
costs. Accordingly, the entire amount is dutiable.
Concerning item 412 (Fire and Butterworth...Modification),
it is claimed by the applicant to be a non-dutiable permanent
modification to the hull and fittings. However, examination of
the shipyard invoice reveals that this alleged modification
utilized valves which were overhauled by the shipyard. Reliance
is sought to be placed upon what is referred to as Exhibit 4(a),
a document of no probative value. The invoice for this item
itself is of much greater worth, and since it does not itemize
between modification and repair costs, we find the entire amount
to be dutiable, less the itemized amounts for rigging and
ventilation.
With regard to invoices previously mentioned which
demonstrate the domestic purchase of parts and materials, we have
found that the Customs administration of duty assessment issues
under section 1466 regarding U.S.-made materials purchased in the
U.S. had for some time been guided by the terms of Treasury
Decision 75-257 (T.D. 75-257). That decision provides that when
materials of U.S.-manufacture are purchased by the vessel owner
in the U.S. for installation abroad by foreign labor, the labor
cost alone is subject to duty under section 1466. When those
same materials are purchased by the owner overseas or purchased
in the U.S. by parties other than the owner, the cost of the
materials themselves (even though of U.S.-manufacture) was also
subject to vessel repair duty.
The climate with regard to parts shipped abroad from the
United States for foreign installation was transformed on August
20, 1990, when the President signed Public Law 101-382 which
added a new subsection (h) to section 1466. While this
provision applies by its terms only to foreign-made imported
parts, there is ample reason to extend its effect to U.S.-made
materials as well. To fail to do so would act to discourage the
use of U.S.-made materials in effecting foreign repairs since
continued linkage of remission provisions of subsection (d)(2)
with the assessment provisions of subsection (a) of section 1466
would obligate operators to pay duty on such materials unless
they were installed by crew or resident labor. If an article is
claimed to be of U.S. manufacture, there must be proof of its
origin in the form of a bill of sale or domestic invoice. If an
article is claimed to have been previously entered for
consumption, duty paid by the vessel operator, there must be
proof of this fact in the form of a reference to the consumption
entry number for that previous importation, as well as to the
U.S. port of importation. If imported articles are purchased
from third parties in the United States, a domestic bill of sale
to the vessel operator must be presented. Further, with regard
to imported articles, there must be presented a certification
from the owner or master that the vessel at issue is a cargo
vessel and that the imported articles were purchased for
installation aboard the company's vessels.
If the elements stated above are proven to the satisfaction
of Customs, the cost of foreign labor utilized for installation
of U.S.-made or previously imported articles will be subject to
duty under section 1466 in matters concerning repairs, and only
the cost of qualifying materials used in repairs will be free of
duty. Modifications will of course continue to be treated as
duty-free, both materials and labor.
HOLDING:
After thorough review of the evidence submitted, and as
detailed in the Law and Analysis portion of this ruling, we
recommend that the Petition for Review be denied in with regard
to those items specifically enumerated. If, prior to
liquidation, the proper certification and/or proof of prior
importation is presented, the non-enumerated items considered
under section 1466(h) may be considered free of duty.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch